Glossary
Exchange of contracts
Exchange of contracts is when the buyer and seller sign identical contracts and the deposit is paid, making the sale binding subject to any cooling-off rights and conditions. Settlement follows on the date set in the contract.
An example
A buyer has finance arranged and exchanges contracts on a new home. The contract gives a settlement date, which becomes the deadline for their bridging loan to be ready.
Why it matters
Once contracts are exchanged, withdrawing can be costly. Borrowers who need finance to complete should be confident it is available before they exchange or make the contract conditional on finance.
Points to check
Before exchanging, make sure your finance is in a position to settle on the contract date, because once the contract is unconditional you may lose the deposit if you cannot complete. Ask your conveyancer about cooling-off rights, which vary by state and do not apply at auction. Check any finance condition in the contract and its deadline. If you are relying on a sale of another property, plan the timing of both contracts together.